WHICH PARTNERSHIPS ARE NOW IN SCOPE?

The scope of the Bermuda economic substance regime has been expanded to include all partnerships including limited partnerships, exempted partnerships, exempted limited partnerships, and registered overseas partnerships. Until the Amendment Act was passed, only partnerships which had elected to have separate legal personality under s4A of the Partnership Act 1902 were within scope of the regime.

WHAT ARE RELEVANT ACTIVITIES?

Partnerships which are engaged in a relevant activity must comply with the economic substance requirements.  Relevant activity means carrying on as a business any one or more of the following: banking; insurance; fund management; financing and leasing; headquarters; shipping; distribution and service centre; intellectual property; and holding entity.

WHAT ARE THE ECONOMIC SUBSTANCE REQUIREMENTS?

In summary, a partnership conducting a relevant activity will satisfy the economic substance requirements if: (i) it is managed and directed in Bermuda; (ii) core income generating activities (CIGA) are undertaken in Bermuda in relation to the relevant activity; (iii) it maintains adequate physical premises in Bermuda; (iv) there are adequate full time employees in Bermuda with suitable qualifications;  and (v) there is adequate operating expenditure incurred in Bermuda in relation to the relevant activity.

A partnership which is not registered as an exempted partnership, which only carries on business in Bermuda and which is not a part of a multinational group will be subject to reduced economic substance requirements.

REPORTING OBLIGATIONS

A partnership which is conducting a relevant activity will be required to file, on an annual basis, an economic substance declaration (Declaration) with the Registrar of Companies, confirming that the entity complies with the economic substance requirements.

The Declaration will require the disclosure of certain key information applicable to an analysis of substance requirements, including, but not limited to, (i) the nature of the relevant activity being undertaken and the CIGA being undertaken by that partnership in Bermuda; and (ii) the nature and extent of the entity’s presence in Bermuda.

WHAT ARE THE PENALTIES FOR NON-COMPLIANCE?

There are financial and other penalties for a partnership failing to meet the economic substance test. The Registrar of Companies has monitoring and enforcement powers which includes the power to fine partnerships for non-compliance, as well as having the power to apply to the Bermuda Court to make an order requiring a non-compliant entity to take any action to satisfy economic substance requirements, including to prohibit business activity.  The ultimate sanction, for repeated non-compliance with the economic substance requirements, is for the entity to be struck off the register.

WHEN WILL THIS APPLY?

All new partnerships formed on or after 1 July 2021 which are carrying on a relevant activity will be immediately subject to the economic substance requirements. Existing partnerships which have not elected to have separate legal personality and which are engaged in a relevant activity will have a six month transition period and must comply with the economic substance requirements from 1 January 2022.

If you have any questions about the Economic Substance Act and Regulations and how they may apply to your business or transaction, please contact your usual Appleby contact or a member of the team.  Appleby has created an online Economic Substance Entity Classification Questionnaire, which is available free of charge, and offers clear and concise guidance through the economic substance regimes of Bermuda, BVI, Cayman Islands, Guernsey, the Isle of Man and Jersey.

Share
Twitter LinkedIn Email Save as PDF
More News
24 Jun 2022 | News

Gold Sponsor Appleby to Speak on Three Panels at Bermuda Trusts Conference

Appleby is pleased to be a Gold sponsor of the Transcontinental Trusts: Bermuda 2022 conference on 2...

21 Jun 2022 | News

Vanessa Schrum to Co-Chair and Speak at Private Client Exchange Bermuda 2022

Vanessa Schrum, Appleby partner and Group Head of the Private Client and Trusts department in Bermud...

1 Jun 2022 | News

Navigating Sanctions: Expansion of Russian Sanctions Regime in Bermuda

Bermuda entities should carefully assess their business in light of rapidly evolving financial and t...

Contributors: Sally Penrose
1 Jun 2022 | News

Economic Substance Update: Compliance Reviews, Proposed Penalties and Filing Declaration Preparations

On 16 May 2022, Bermuda’s Registrar of Companies (Registrar) announced that reviews of Bermuda ent...

Contributors: John Wasty
11 May 2022 | Deals

Appleby Bermuda Advised Relm II In Its Incorporation And Registration To Provide Reinsurance Capacity In The Crypto Space

Appleby served as Bermuda counsel to Relm Insurance II Ltd. (Relm II) in connection with its incorpo...

5 May 2022 | Deals

SkyRidge Re team wins ‘Life Transaction of the Year’ at the Trading Risk Awards 2022

Congratulations to the SkyRidge Re team for winning ‘Life Transaction of the Year’ at the Tradin...

19 Apr 2022 | Deals

Appleby Bermuda Advised Swiss Re In Innovative USD1.15bn Transaction Combining Bank Financing And Insurance-Linked Securities

Appleby acted as Bermuda counsel to Swiss Re, a leading wholesale provider of reinsurance, insurance...

18 Apr 2022 | News

New Dispute Resolution Lawyer Joins Appleby Bermuda

Appleby Bermuda is delighted to welcome new Associate Justin Lafferty to its growing and specialised...

4 Apr 2022 | News

Bermudian Duncan Card Joins Appleby As Partner

Appleby is delighted to announce Bermudian Duncan Card, a leading commercial lawyer that was based i...

1 Apr 2022 | News

Appleby announces new Partners and Counsel promotions

Appleby announces the promotion of two Partners and the appointment of five lawyers to the position ...